How Fixed Deposit can help you in Saving Money

Fixed Deposits are the safest method of investment which is offered by every banks and financial institutions for a tenure ranging from 7 days to 10 years.

Any individual whether salaried or self-employed needs to save money for any important or unforeseen situations in the future. Saving money is one of the essential parts of an individual’s life.
But saving money is not as easy as it seems. Every individual aim to save money, but ends up spending them all. The smart way to save money is to spend less.

The basic part of saving money is making a budget. Once you have ample funds, invest it rather than securing it in your savings bank account. It helps you to fetch interest over your money. There are mutual funds, stock markets, equities, and many other options to invest but all are subject to market risks. The Fixed Deposit interest rates, on the other hand, earns you specific returns on your investment with no risk.

Fixed Deposits are the safest form of investment which is offered by all major banks and financial institutions for a tenure ranging from 7 days to 10 years. In Fixed Deposit, the investor needs to invest the entire amount at one go and the interest is calculated on monthly, quarterly or annually basis. If you need to withdraw money before maturity, your bank allows to but levies a premature withdrawal penalty.

Reasons for investing in Fixed Deposit:

Fixed deposits are the most secure form of investments. The investor invests a certain amount at one go for a fixed tenure at a fixed interest rate and can expect a specific amount at the time of maturity.

There are two types of Fixed deposits payout: one is cumulative, where the interest is calculated on a quarterly or annual basis and paid out at the time of withdrawal, and the other is non-cumulative, where the interest is calculated on yearly, quarterly or even on a monthly basis.

The major reasons for making fixed deposits are:

1. A fixed deposit offers you insurance of Rs. 1,00,000 of the amount invested. However, if you want to deposit a huge amount you can split it into multiple FDs to earn this benefit.

2. Fixed Deposits can be closed before maturity; if you face any financial emergencies, however, certain premature withdrawal penalties are levied over it.

3. An individual can opt tax saving fixed deposits where a certain amount of money gets locked for five years. The investor cannot break this investment or cannot use it for any loan or credit card purpose.

4. Senior citizens get an advantage of 0.5% more interest than the fixed deposit interest rates usually availed by individuals.

5. One can apply for a loan from banks against the Fixed deposits made in that particular bank. This can work as collateral, and the interest charged for the loan is lesser than the usual one.

Fixed deposits help you to save money in multiple ways:

• It helps you to save money for a longer tenure as you cannot withdraw it before maturity (if needed to do so you need to pay prematurity withdrawal penalty)
• It offers a higher rate of interest
• It can be used as collateral against loan or credit card and fetch up to 70-80% of deposit.
• The interest is calculated on a monthly, quarterly or annual basis.
• There is no tax charged if the interest earned is less than Rs. 10,000.
• An FD of Rs. 1,50,000 for five years is tax-free under Section 80C of Income Tax Act, 1961.Related Blog: Tips for investing in Fixed deposit